Beware of the post Budget Sensex forecasts! - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
PRINTER FRIENDLY | ARCHIVES

Beware of the post Budget Sensex forecasts! 

A  A  A
In this issue:
» India scores poor on tax collection parameter
» Will the recent Budget curtail RBI's powers?
» Market roundup
» ...and more!


00:00
One of the most awaited financial events is past us now. And there is a lot of analysis on the hits and misses in the roadmap laid out by the Finance Minister Arun Jaitley. Going by the reviews, it seems to be a positive Budget. Whether or not it will fulfill its agenda is something time will tell as the key lies in the implementation. Cliched though it may sound, this is the aspect that determines the success of the Budget. Also, the aspect where most of the Governments falter, irrespective of how noble the intentions are.

We have already presented our views on the Budget in the previous edition of Wrap up. What we want to bring to your attention this time is one of the evils that invariably tags along with such announcements i.e. speculation in the stock market. It is noteworthy that Sensex has changed direction at least 12 times post the Budget Speech!

While even the experts believe that the Budget is somewhat short on details to be effectively analyzed, there are people who have already written its success story. Take any financial daily. The pages are littered with the headlines and articles predicting future levels for Sensex on the basis of Budget Speech, as high as 50k (up 70% from the current levels) in a period of 2 years!

If you go deeper, there will be no dearth of reasons cited for these gains. The one which we would like to mention here is the doubling of corporate earnings and hence their share in GDP from a low of 4% to high of 7% , even as GDP itself is expected to go from below 5% to over 8%. What it fails to take into account is that even as a real improvement is yet to be seen at the ground level and in the corporate earnings, the rise in Sensex over last one year already takes into account a lot of such expected upsides.

While positives are already getting reflected, we need to be mindful of the speed breakers that may come in the way of growth. Much of the turn around in the economy has been on account of benign global factors such as oil price decline. Even the softening of inflation is more because of external reasons, something which the Government can not take much credit for. The manufacturing climate in the country does not paint a very positive picture either. And last but not the least, much of the gains in the Sensex are a result of the huge FII inflows in the backdrop of relatively low rate of returns in the developed economy. A reversal in any of these trends could lead to an unfavourable twist in the growth story. And in case that happens, we will not be surprised to see doomsayers coming to the forefront. Except that they will be as unreliable as the cheer leaders are now.

Our suggestion to you is to drown these noises and not let them affect your investing decisions. Across the budgets and economic cycles, there have been stocks that have done well and others that have tanked, exposed to the same economic environment and expectations. What has made these stocks and the investors in them winners or losers are the company specific fundamentals. Hence, focus on the bottom up stock picking and stay disciplined in your investing decisions. And that alone should be enough to make equity investing a rewarding experience in the long run.

Do you get influenced by speculations in stock markets post events like Budget announcements? Let us know your comments or share your views in the Equitymaster Club.

--- Advertisement ---
You Need To Know About These High Potential Stocks...

In the recent days, we have talked to you about the high returns that Small Cap stocks are capable of giving.

But seeing how investors are making returns like 1,811% in 5 years, 217% in 3 Years & 11 Months, 250% in 2 Years 1 month, we thought we should really bring this to your notice one more time.

Now, even though you may say that past performances don't guarantee future returns, we would still like you to know that over the years, this kind of High Potential Small cap Stocks have managed to give double and triple digit returns consistently.

And according to our research, there are some select small cap stocks like these that still have the potential to make you maximum profits.

So hurry and grab your Small cap stocks now!

The sooner you get them, the greater is the potential for profit.

Click here for full details...
---------------------------


02:30   Chart of the day
An important highlight of the Budget that we bet did not miss anyone's attention was a reduction in the corporate tax rates over next four years to a marginal rate of 25%, from 30% now. The gap between the two rates to some extent gives an idea of the quality of tax administration (efficiency in tax collection) in a country. The higher the gap, the poor is the tax administration. Mr. Aswath Damodaran, a renowned name in the world of corporate finance and valuations has done an interesting exercise in an attempt to measure tax administration. He has compiled effective corporate tax rates (average rate of taxation) for different countries for 2013 and compared this to marginal tax rates (rate of tax that applies to the last unit of income). As per the data compiled by Mr. Damodaran, India's stands in the bottom 20 in terms of tax collection. As per Mr. Damodaran, the global average difference between marginal and effective tax rates is about 2.6%. India, with a gap of 7.82%, seems to be a laggard in terms of efficiency in the tax administration.

As far as India is concerned, different kinds of exemptions are responsible for the huge gap between the two. As mentioned in an article in Livemint, these exemptions have not only led to an uneven playing field for different companies, but have resulted in ambiguous tax code, making the country less business friendly. In this context, Finance Minister's decision to remove these exemptions as corporate tax rates are brought down will be a move in the correct direction leading to better business planning we believe.

Tax administration : India in the list of bottom 20


03:40
The tussle between growth and inflation is something we all are already aware of. As a pro growth Government came into power last year, there were fears if the Reserve Bank will be under pressure to give way to a rate cut. But nothing of that sort happened. Under the able leadership of Mr. Rajan, the central bank chose to stick to its disciplinarian role as far as inflation was concerned. However, with Budget 2015 laying way to a new monetary policy committee and separate Public Debt Management Agency (PDMA), RBI powers may be curtailed.

As an article in Firstpost highlights, the Government from now on will have an important say in deciding the inflation targets. While the veto power will rest with the RBI Governor, there might be certain strain as far as independence of central bank is concerned. This is specially keeping in mind that debt management - one of the RBI's core functions that manages liquidity in the banking system will be moved to a separate debt agency.

Further, while the Government has set the inflation targets for RBI (below 6%), it has pushed its own target of keeping fiscal deficit under 3% by a year to 2017-18. Given the fact that inflation level in India are much determined by supply side factors and Government's fiscal policies, the new framework may unfairly hold RBI solely responsible for inflation targeting.

04:30
The Indian stock markets witnessed a volatile session today. After opening on a firm note, the markets slipped into the red in the afternoon trading session, but recovered in the latter half. The BSE-Sensex closed the day higher by around 97 points, led by the stocks in the capital goods and banking sector. However, FMCG and realty stocks were facing selling pressure.

04:50  Today's investing mantra
"I think you have to learn that there's a company behind every stock, and that there's only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies." - Peter Lynch

Editor's Note: This Sunday, in the 5 Minute WrapUp we carried a link to a video - Get Up. Stand Up. Don't Give Up the Fight: How Your Chair is Killing You produced by our friends at Common Sense Living. The video generated quite a response, including questions about the credibility about research based on which the claim was made. Here's Anisa Virji, the Editor, with a follow up on the same... "I mentioned research that indicates that 'sitting for 6 hours or more a day is equivalent to smoking a pack of cigarettes a day.' This idea seems to have originated in an Australian study published in October 2012 in the British Journal of Sports and Medicine, which compared the negative impact of prolonged sitting with that of smoking.

Doctors, and other purveyors of health ideas everywhere, jumped on the comparison in this study to sensationalise the harms of sitting leading to headlines such as Anup Kanodia, a physician and researcher at the Center for Personalized Health Care at Ohio State University's Wexner Medical Center saying that "Sitting is the new smoking,"; Nilofer Merchant (referenced in the video) calling sitting the smoking of our generation and David Agus, MD, leading cancer doctor who treated Steve Jobs, saying that sitting for five or six hours a day, even if you spend an hour a day at the gym, is the equivalent of smoking an entire pack of cigarettes.

The idea is not to tamp down on the harms of smoking (which have been established beyond a doubt) but to bring awareness to the harms of prolonged sitting. As I note in the video, just the fact that we have to scrutinize the simple, ubiquitous activity of sitting - compare it with smoking, and measuring its risk of death is scary enough. If smoking is your vice, yes do definitely quit. But if sitting is your vice, this article hopes to get you off your behind as well."
Today's Premium Edition
MNC Pharma: Will the pack be able to mirror its past performance?
The MNC pharma companies have witnessed healthy growth. Will the trend continue?
Read On...Get Access
Recent Articles:
This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)
August 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
This Company Beat the Business World's 'Three Killer Cs'
August 16, 2017
And what it has in common with beating the stock market too.
Let's Hope This Correction Continues
August 14, 2017
Last week's correction is making a number of Super Investor stocks look a lot more attractive...
Insider at It Again. This Time Stealing from Buffett and Berkshire
August 12, 2017
What is Equitymaster Insider Ankit Shah stealing from Berkshire's success?

This edition of The 5 Minute WrapUp is authored by Richa Agarwal.

Equitymaster requests your view! Post a comment on "Beware of the post Budget Sensex forecasts!". Click here!

1 Responses to "Beware of the post Budget Sensex forecasts!"

T Kkkuruvilla

Mar 3, 2015

Yes . U are very correct. Ground realities are not so rosy.

Like 
  
Equitymaster requests your view! Post a comment on "Beware of the post Budget Sensex forecasts!". Click here!

MOST POPULAR | ARCHIVES | TELL YOUR FRIENDS ABOUT THE 5 MINUTE WRAPUP | WRITE TO US

DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group.
BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.
DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.
GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.
DETAILS OF ASSOCIATES:
  1. Quantum Information Services Private Limited (QIS) having its registered office at 103, Regent Chambers, Nariman Point, Mumbai 400021 is registered under SEBI (Investment Advisers) Regulations, 2013 vide Registration No. INA000000680. QIS provides information on mutual funds and personal financial planning, financial markets in general, and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services through its website www.personalfn.com
  2. Agora Holdings (Cyprus) Limited having its registered office at Akropolis, 59-61, 3rd Floor, Office 301 Strovolos 2012 Nicosia Cyprus belongs to Agro group (Agora) which owns www.agora-inc.com and is one of the largest and most successful consumer newsletter publishers in the world.
  3. Common Sense Living Private Limited (CSL) owns www.commonsenseliving.co.in and is an initiative that provides straightforward lifestyle and wealth-building ideas from wealth coach Mark Ford. CSL is 100% subsidiary Company of Equitymaster.
DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407